INTRODUCTION OF MEDICARE MODERNIZATION #4 MEDICARE PERMANENT COMPETITIVE BIDDING AUTHORITY -- HON. FORTNEY PETE STARK (Extensions of Remarks - May 20, 1999)

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HON. FORTNEY PETE STARK OF CALIFORNIA IN THE HOUSE OF REPRESENTATIVES THURSDAY, MAY 20, 1999

Mr. STARK. Mr. Speaker, on behalf of myself and Representative MCDERMOTT, I am pleased today to introduce the fourth bill in my Medicare modernization package: permanent competitive bidding authority. As with the other bills in this series, competitive bidding will save money for Medicare, while also improving the quality of health services provided to Medicare beneficiaries. These modernizations are a template for meaningful Medicare reform that allows us to avoid radical, untried theories that could endanger the program's future.

The promise of managed care is coordinated, comprehensive, cost-effective health services. Medicare+Choice plans are not currently living up to this promise. For some time now, Medicare has over-paid Medicare+Choice plans. Current overpayments are estimated to cost Medicare and taxpayers $2 to $3 billion per year. This is because Medicare+Choice has attracted only the healthiest beneficiaries--people who would have cost next to nothing had they stayed in the traditional fee-for-service plan--leaving a much sicker population in the traditional program.

In addition, managed care plans are disenrolling beneficiaries who need expensive services, such as heart surgery, and then re-enrolling the beneficiary after the fee-for-service plan has paid the bill. The OIG estimates that in 1991 through 1996, Medicare spent $224 million for inpatient services furnished to beneficiaries within three months of their disenrollment. Had these beneficiaries not disenrolled, Medicare could have spent only $20 million in capitation payments. That's $204 million in savings Medicare could have realized. ``Cherry picking'' such as this has forced fee-for-service costs to rise.

Because Medicare+Choice payments are tied to fee-for-service cost, rather than the actual cost of providing care to beneficiaries enrolled in managed care, Medicare continues to over-pay health plans. De-linking Medicare+Choice payments from the fee-for-service program will enable Medicare to pay a more realistic price for managed care services. Fostering greater competition through competitive bidding will help to achieve this goal.

Competitive bidding would take place in both the managed care and fee-for-service Medicare programs. Under this bill, the Secretary of DHHS would have the explicit authority to select items, services, and geographic areas to be included in a bidding or negotiation process based on the availability of providers and the potential to achieve savings. To protect quality, the bill would require that providers meet specified quality standards in order to participate in the bidding process.

Competitive bidding is almost universal throughout the private sector and in many other areas of government contracting. However, HCFA is still forced to go through tortured demonstration processes to ``test'' this basic tool of capitalism.

At this moment, HCFA is trying to get three competitive bidding demonstration projects off the ground: two Medicare+Choice demonstrations, one in Phoenix and one in Saint Louis; and one fee-for-service demonstration for durable medical equipment (DME). Unfortunately, the industry is blocking HCFA's attempt because they know that competitive bidding will force them to charge a more realistic price. This is not about cutting services to beneficiaries or lowering quality standards. It's about helping the taxpayer so that society has the money to improve Medicare for everyone while extending the life of the program. Competitive bidding can work. It has worked in the public and private sectors for centuries. We should make it work for Medicare too.
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As we search for ways to secure and improve Medicare, it is appropriate to consider increasing the efficiency of the program through competition. Introducing competition into the managed care equation will achieve greater efficiencies, higher quality, and cost savings, and will enable Medicare managed care to live up to its promise.

Following is a portion of an interview from the May/June 1999 issue of Health Affairs by Princeton professor Uwe Reinhardt with HHS Secretary Donna Shalala which describes how different it has been to make progress on this simple, basic, free enterprise approach to health care:

THE CONTROVERSY OVER COMPETITIVE BIDDING
Reinhardt: In my time, Medicare has been a pioneer in innovating with the DRG (diagnosis-related group)--based hospital payment system, which has been copied worldwide, and the Medicare physician fee schedule, which has been copied by private American payers. If we are ever going to really test managed competition by having health plans compete fairly for enrollees, only HCFA (the Health Care Financing Administration) can actually show the way, because the private sector has not yet done it so far. Do you share that view?
Shalala: I share that view, but the political system has to buy into it. For instance, we've announced a competitive-bidding demonstration in which we have some consensus among the experts as to where we ought to go and how to organize our experiment with managed competition. Phoenix and Kansas City are our two sites.
Reinhardt: HCFA has attempted such demonstrations in Baltimore and Denver but was forced to abandon both efforts by private interests that were opposed to them.
Shalala: Yes, in Denver we had bipartisan support to try it. But when we got specific and picked the places, we immediately had political opposition. However, Congress directed us (in the Balanced Budget Act [BBA] of 1997) to try again. We set up an advisory panel on which all of the political interests were represented. And now we're proceeding again.
Reinhardt: I suppose that we should never expect the managed care industry to voluntarily acquiesce to a competitive-bidding process because people instinctively don't like to compete. They prefer administered prices because such prices can be manipulated politically. Who is it, in general, that opposes competitive bidding?
Shalala: One source of opposition is the managed care industry. The companies in that industry believe that such a process will undermine their profits. So the private sector--the famed competitive marketplace--doesn't want competition. They keep saying things like, ``Health care is different; we can't predict our costs.'' We have to have a system that is more nimble, more flexible. Managed care plans would not oppose a competitive-bidding process if they could modify the package of benefits. But if HCFA locks them into a benefits package, they want to be able to negotiate the price, rather than making competitive bids.

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